More Wall Street turmoil, but local banking steady

//March 20, 2008

More Wall Street turmoil, but local banking steady

//March 20, 2008

Midstate banks have largely avoided the turmoil on Wall Street, local financial observers said, after a weekend that saw the near collapse of a major financial firm and unusual interventions by the Federal Reserve System.

The Fed over the weekend backed a deal for JPMorgan Chase & Co. to acquire the reeling Bear Stearns Companies Inc. The Fed also took other steps, including a highly unusual offer to lend money to securities firms through a system that is usually limited to banks, according to the Wall Street Journal.

“It suggests we are in some extraordinary economic times,” said Matthew C. Schultheis, a Baltimore-based stock analyst who follows several local banks for Ferris, Baker Watts Inc.

The Fed is widely expected to slash its benchmark interest rate again tomorrow when it holds a regularly scheduled meeting of its open market committee.

“I think that we are relatively insulated,” said George Groves, the former chairman of the local unit of Mercer County-based F.N.B. Corp. “I’m still of the opinion that we won’t see a lot of impact.”

That’s because with the exception of Charlotte, N.C.-based Wachovia Corp., banks operating in the midstate do not deal in the complex financial arrangements roiling Wall Street, he said.

Still, the drumbeat of bad financial news could lead local bankers to grow more conservative in lending, Groves said.

“Bankers are humans, too,” he said.

Local banks have reason to worry about the broader economic picture, Schultheis said. They face the risk that more loans will grow troubled, he said. That’s especially true for loans tied to real estate, with the exception of owner-occupied commercial real estate, he said. Such loan problems could force the banks to raise their reserves for loan losses, pinching profit margins that are already tight, Schultheis said. Also, the banks are finding it more difficult to sell off mortgage loans to secondary investors, he said.

The PNC Financial Services Group Inc. has some operations that could suffer more directly from the real estate slump and the credit crunch, but the impact on the Pittsburgh-based company would be relatively small, Schultheis said.

Local governments might have a more direct stake in the situation on Wall Street at the moment. Pennsylvania Treasurer Robin L. Wiessmann on Friday told a committee of the U.S. House of Representatives the turmoil has made it harder for municipalities to borrow money.

“State and municipal governments are experiencing collateral damage as a result of the crisis in today’s credit markets,” Wiessman said in written testimony to the committee. She called for a series of federal actions to remedy the problem.

Financial stocks of local interest that are traded on major exchanges were down this afternoon. That included PNC, Wachovia, Lancaster-based Fulton Financial Corp., Lititz-based Susquehanna Bancshares Inc. and Dauphin County-based Pennsylvania Commerce Bancorp Inc.

The Dow Jones Industrial Average was up slightly a few minutes after 2 p.m., while the broader S&P 500 index was down about 1.5 percent, according to Google Finance.